Real is rightly one of this year’s outperformers – Commerzbank

The Brazilian Central Bank (BCB) meets today. However, the Interest Rate Decision is unlikely to have a significant impact on the Real (BRL), economists at Commerzbank report.

BCB in rate cut mode

The interest rate decision from the BCB is certainly one of the less exciting ones this week. The BCB has left no doubt that it is in a rate-cutting cycle for the time being, and a 50 bps cut is seen as a foregone conclusion. The Fed’s rate decision and its impact on the Dollar is likely to be the more important event for the USD/BRL outlook.

The BRL is benefiting from the high credibility that the BCB has earned through early and decisive rate hikes, even in the face of government resistance. In our view, this credibility is unlikely to be compromised in the near future, and we therefore expect a cautious easing. In our view, the BRL is therefore rightly one of this year’s outperformers.